Franklin Delano Obama? By Paul Krugman Published: November 10, 2008 Suddenly, everything old is New Deal again. Reagan is out; F.D.R. is in. Still, how much guidance does the Roosevelt era really offer for today’s world? The answer is, a lot. But Barack Obama should learn from F.D.R.’s failures as well as from his achievements: the truth is that the New Deal wasn’t as successful in the short run as it was in the long run. And the reason for F.D.R.’s limited short-run success, which almost undid his whole program, was the fact that his economic policies were too cautious. About the New Deal’s long-run achievements: the institutions F.D.R. built have proved both durable and essential. Indeed, those institutions remain the bedrock of our nation’s economic stability. Imagine how much worse the financial crisis would be if the New Deal hadn’t insured most bank deposits. Imagine how insecure older Americans would feel right now if Republicans had managed to dismantle Social Security. Can Mr. Obama achieve something comparable? Rahm Emanuel, Mr. Obama’s new chief of staff, has declared that “you don’t ever want a crisis to go to waste.” Progressives hope that the Obama administration, like the New Deal, will respond to the current economic and financial crisis by creating institutions, especially a universal health care system, that will change the shape of American society for generations to come. But the new administration should try not to emulate a less successful aspect of the New Deal: its inadequate response to the Great Depression itself. Now, there’s a whole intellectual industry, mainly operating out of right-wing think tanks, devoted to propagating the idea that F.D.R. actually made the Depression worse. So it’s important to know that most of what you hear along those lines is based on deliberate misrepresentation of the facts. The New Deal brought real relief to most Americans. That said, F.D.R. did not, in fact, manage to engineer a full economic recovery during his first two terms. This failure is often cited as evidence against Keynesian economics, which says that increased public spending can get a stalled economy moving. But the definitive study of fiscal policy in the ’30s, by the M.I.T. economist E. Cary Brown, reached a very different conclusion: fiscal stimulus was unsuccessful “not because it does not work, but because it was not tried.” This may seem hard to believe. The New Deal famously placed millions of Americans on the public payroll via the Works Progress Administration and the Civilian Conservation Corps. To this day we drive on W.P.A.-built roads and send our children to W.P.A.-built schools. Didn’t all these public works amount to a major fiscal stimulus? Well, it wasn’t as major as you might think. The effects of federal public works spending were largely offset by other factors, notably a large tax increase, enacted by Herbert Hoover, whose full effects weren’t felt until his successor took office. Also, expansionary policy at the federal level was undercut by spending cuts and tax increases at the state and local level. And F.D.R. wasn’t just reluctant to pursue an all-out fiscal expansion — he was eager to return to conservative budget principles. That eagerness almost destroyed his legacy. After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections. What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy’s needs. This history offers important lessons for the incoming administration. The political lesson is that economic missteps can quickly undermine an electoral mandate. Democrats won big last week — but they won even bigger in 1936, only to see their gains evaporate after the recession of 1937-38. Americans don’t expect instant economic results from the incoming administration, but they do expect results, and Democrats’ euphoria will be short-lived if they don’t deliver an economic recovery. The economic lesson is the importance of doing enough. F.D.R. thought he was being prudent by reining in his spending plans; in reality, he was taking big risks with the economy and with his legacy. My advice to the Obama people is to figure out how much help they think the economy needs, then add 50 percent. It’s much better, in a depressed economy, to err on the side of too much stimulus than on the side of too little. In short, Mr. Obama’s chances of leading a new New Deal depend largely on whether his short-run economic plans are sufficiently bold. Progressives can only hope that he has the necessary audacity.
Mmmm... Nobel prize winner, check. Says the bad stuff we've been reading about FDR, all the right-wing babble, is mostly bunk, check. Trader_J's favorite saying... NEXT.
i think he should be more 'Square Deal' and less "New Deal." it did strike me as strange that you could have a recession in the middle of the Great Depression
I thought it was commonly accepted that WWII was the big economic stimulus that finally pulled America out of the Great Depression. This whole bunk about FDR being responsible for prolonging the Depression is an entirely new theory that was manufactured as soon as it became obvious that Obama was going to become our next president, and AFAIK, has no historical precedent.
It's a 40-year-old theory, by another Nobel Prize winner, Milton Friedman, who is often considered the greatest economic mind of the 20th century. Friedman helped design parts of the New Deal. It wasn't until he stepped back and checked the math that he realized that it extended the very Depression that it tried to stop.
it would have been nice if krugman actually would have made note of the debt that is spiraling out of control. as anna schwartz has said this problem we are in now is not the same as the great depression and we should not attempt to handle it the same way. i wonder if people ever stop to think and wonder if there actually is this magic solution to the problem. i wonder if people realize that there may not be a solution and there is eventually a time when you have to face up to the mistakes that have been made and you can't magically push them aside as the fed has continued to do. i'm not saying there aren't way that the pain can't be eased but do people ever stop to think and wonder if the past 25 or so years was even real with respect to economic growth? what exactly did we create during these 25 years? the only thing i can clearly see that we created was a destructive spend spend lifestyle and an unsustainable debt load....someone help me out here and show me where i am wrong.
I don't think you can just throw hands up in the air and declare that we haven't had any real economic growth. We have in fact had significant technological advancements that translate into real economic benefits. Standards of living are orders of magnitude higher than they were a couple of decades ago. And population growth alone has contributed to increased productivity and output. At the same time, our borrow and spend lifestyle did create a monstrous bubble above that trend that clearly needed deflating. Anybody looking for a magic fix to this is going to be wasting their time, but I do think there is genuine reason to hope for long-lasting recovery. It's just that the status quo is changing for good, and that change process is painful to live through.
Friedman has always been a controversial conservative. Conservatives/ libertarians have probably liked to think of him as the greatest economic mind of the twentieth century.
And Chileans and Brazilians and Argentines and virtually any other country that created wealth and freedom over the past 1/2 century. Notable exception: Chona went old-school and looked straight to Adam Smith for guidance.
Chileans? Really? Let me guess. you stoppped reading about CHile in 1981. And in 1982 after its GDP dropped 15% it must have been something else. Crediting the Chicago Boys with saving CHile's economy in the 70's is like crediting Greenspan for keeping money loose in the U.S. in the 2000's....POP!
I'm sure you'll forgive me if I don't leap to accept anything Bernanke has to say about Milton Friedman's A Monetary History of the United States, 1867-1960. And while Friedman is deservedly famous, his work, published in 1963, is simply another in a host of opinions on this subject. (and don't mess with my attempt to make fun of Trader_J, OK? ) NEXT.
yeah the sad thing about bernanke is that anna schwartz (co-author) is basically ripping bernanke for not being able to understand that this problem we have today is not the great depression and he is treating it as if it were. he is going to really start causing major problems by flooding the market with money when that is not the problem. liquidity is not the issue...the consequences of easy credit is the issue. btw...i do love how our self proclaimed economic bad ass TJ has nothing to say on these economic issues. tj=fail
